Just as the government has extended Safe Harbour measures preventing business insolvencies to December, new data from leading digital credit agency CreditorWatch has revealed the biggest rise in ‘zombie’ companies since the legislation was introduced.

Business administrations fell 37.1% from July to August and are 59% lower than the average across 2019, meaning that thousands of Australian businesses are now relying on government support to stay afloat.

With some sectors showing strong resilience, and credit enquiries showing consistent month-on-month increases, CreditorWatch is calling for Safe Harbour measures to be eased off now to prevent a tsunami of insolvencies in January 2021.

Credit enquiries on the CreditorWatch platform, a live indicator of business activity, increased for the fourth month in a row. August showed a 7.5% increase in enquiries, following increases of 6.1%, 11.8% and 10.2% in July, June and May respectively.

“Whilst Safe Harbour legislation was critical in stabilising the Australian economy as it went into recession, the measures are now becoming counterproductive because they are propping up companies that should be allowed to fail,” CreditorWatch CEO, Patrick Coghlan said.

“By extending the moratorium to December, the government is wasting taxpayer money by kicking the can down the road. It means that solvent businesses are having to trade with otherwise insolvent debtors, risking their own health, whilst doomed businesses can put off paying creditors or even the ATO.

“In fact, some business sectors are performing well. The ‘made in Australia’ brand is flourishing and there are healthy companies out there. That’s why this legislation needs to be eased off gradually running up to the December deadline. Otherwise, we could see an astonishing collapse come January.”

CreditorWatch chief economist, Harley Dale added: “Our monthly Small Business Risk Review paints a stark picture of Australia’s economic landscape. It sounds harsh, but these businesses need to be allowed to fail so that government focus can be aimed at companies that can stand on their own two feet.

“This is a much bigger cog in the wheel of Australia’s economy than policymakers realise. Winding back Safe Harbour measures, whilst ensuring borderline companies receive the assistance required from restructuring bodies, are crucial to ensuring Australia passes through the next ‘economic gate’ without taking a massive blow at the beginning of 2021.”